Wiggle room in Motorola Mobility's state tax break

Company made oral agreement to maintain 3,000 employees in Libertyville, Quinn says

June 19, 2011|By Alejandra Cancino | Tribune reporter

The fine print in a contract between Illinois and Motorola Mobility indicates that the smartphone company can maintain a smaller workforce than the one it employs today and still qualify for more than $110 million in financial incentives designed to keep the company's workers in the state.

In May, Gov. Pat Quinn announced that the state put up the incentives to persuade Motorola Mobility to keep its corporate headquarters inLibertyville and retain about 3,000 jobs.

What was not disclosed at the time is that the agreement specifically requires Motorola Mobility to retain a workforce here of 2,500 workers. The company disclosed in the contract that it employs 3,290 people at its locations in Libertyville and Chicago, which therefore allows it to reduce the size of its workforce and still get the credits.

That detail was contained in the state's contract with Motorola Mobility, one of 10 tax incentive contracts the state provided to the Chicago Tribune as a result of a Freedom of Information Act request. Motorola Mobility's contract represents about half of the $217 million in tax credit deals the state has made this year.

The governor says the state has an "oral" agreement with the company to keep 3,000 jobs in Illinois. The company calls the 2,500 figure a floor and says the incentive agreement is designed to encourage the company to maintain and grow its work force in Illinois.

Still, the contract is generating criticism from at least one opponent of such incentive packages.

The contract Motorola Mobility negotiated potentially gives it at least $113.7 million in tax credits over 10 years. In return, the company agreed to invest $600 million in the state, including $30 million in capital improvements, besides committing to the workforce of 2,500, though both sides at the time said the deal would keep about 3,000 jobs in the state.

"We have an oral agreement with them," Quinn said in a telephone interview Friday. "They told us that they were going to maintain 3,000 employees in their site in Libertyville and we believe them."

Quinn confirmed the oral agreement is not legally binding. Quinn said Motorola Mobility, which spun off from Motorola Inc. in January, has deep roots in Illinois and with local contractors and suppliers. If it had moved, that would have hurt the state.

"They would have (invested) the $600 million in another state," Quinn said, adding that Motorola Mobility was looking at San Diego and Texas as potential headquarters.

"We worked with them and worked with them and came up with a program that finally maintains their workforce here, but also they are investing $600 million," he said.

The contract also includes a clause that Motorola Mobility is not required to hire any workers to qualify for the incentives. But if it does, the company could keep 100 percent of the taxes the new employees would have paid the state.

No such clause exists in the other nine incentive packages finalized this year under the state's cornerstone economic development program, based on a review by the Tribune.

"Motorola Mobility has two obligations to Illinois under this agreement: investment, both capital investment and research and development; and, locating our headquarters in Illinois," Jennifer Erickson, Motorola Mobility's spokeswoman, said in a statement. "The incentives we receive are based on our employment and are designed to encourage us to maintain and/or grow our workforce."

Erickson added that the 2,500 is a floor number. "The incentive calculation is designed to have us maintain and grow our Illinois workforce," she said.

Rep. Jack Franks, D-Marengo, a frequent critic of the incentives program, called the deal "outrageous."

Franks said he is glad Motorola Mobility decided to stay in the state, but that its deal doesn't pass the sniff test. Franks said such transactions should be made public once negotiated, but before the state signs off on them, so they can be reviewed beyond the governor's office.

"If citizens knew that (Motorola Mobility) could fire 790 people and still get the tax credits, I don't think anyone would stand for that," Franks said.

Franks has maintained that the state should reduce tax rates for all companies instead of playing favorites. Earlier this year, the state increased the corporate tax rate from 4.8 percent to 7 percent.

"There is no benefit (to increasing the tax rate) if the governor keeps giving it away," Franks has said.

Motorola Mobility's package is the largest Quinn has given since he took office. It includes $1.25 million in job training funds and a $3 million large-business development grant to assist with capital expenses.

The state's tax credit program, called Economic Development for a Growing Economy, or EDGE, was created in 1999 to compete with other states' tax incentives.

In recent years, the EDGE credit has reduced the state's corporate income tax revenues by about $25 million annually, with the state giving out $280.5 million in credits in the decade ended Dec. 31, 2009.

Since taking office, Quinn has pledged $547 million in tax credits over 10 years to more than 120 projects.

Quinn said the state is working with small, medium and large companies to create and retain jobs. EDGE, he said, is just one of a number of programs designed for that purpose.

He said the programs are needed as the state battles an 8.9 percent unemployment rate and fends off other states hoping to lure away companies.